Opening address - 2014 Australasian Aid and International Development Policy workshop

Speech, E&OE, proof only

14 February 2014

Good morning everybody, I am delighted to be here. Vice-Chancellor Ian Young, thank you for that welcome. Professor Stephen Howes, our esteemed guests, your Excellencies, the Ambassadors, ladies and gentlemen.

I am really pleased to be at this workshop because I hope that we can all share the same goals. We want to find ways to make Australia's aid program work more effectively, to help improve people's lives. We want to find the very best ways to alleviate poverty and improve economic outcomes and build stability and prosperity, particularly in our region the Indian Ocean, the Asia Pacific.

I want to thank the Crawford School for organising this conference and creating a forum for sharing and collaborating. I thank also the Harold Mitchell Foundation for donating the funding for policy research and partnering in the $3 million Case Management Centre for victims of family sexual violence that I announced last week when I was in Lae in Papua New Guinea.

To the conference participants, your research gives us insights on changing landscapes of development assistance. And there is no doubt that it is changing. I take issue with those who focus on quantity not quality. There are many examples in domestic policies where billions of dollars have been poured into programs only to find that standards have gone backwards. So, what we need to do is focus on new ways of achieving better outcomes in the area of overseas development assistance and aid.

There are new emerging donors on the landscape that are increasingly important. The private sector is a major driver of growth and it is a powerful contributor to development programs. Official development assistance now provides a relatively small share of total finance for development. Economically sustainable communities and economies are the key to the alleviation of poverty and increasing living standards. It has been called the new aid paradigm. Our aid program can succeed in this new paradigm because when we get it right we can make a real difference and in doing this, focus on our region.

Now we have not always got it right. I find it utterly distressing to continue to see aid programs in Papua New Guinea, for example, that are not having the desired outcome. I find it distressing to know that despite the fact that Australia invests about half a billion dollars each and every year into Papua New Guinea, it will not meet one of its millennium development goals, in fact it is going backwards. It is not on track to meet one of the seven millennium development goals. And I am not just focussing on PNG, this is an issue across our region.

We need a more effective and efficient aid program. We need an aid program with a strong culture of accountability and performance and the new Government is committed to a new strategic direction for Australia's aid program which will enhance the work we are already doing in the region and will focus on the region.

So let me be clear from the outset. It is in Australia's national interest to deliver a responsible, affordable and sustainable aid program. A program that will promote economic growth and reduce poverty.

Now we have had to make some pretty tough decisions this year. We inherited a deteriorating budget from the previous government - cumulative deficits of $123 billion. Now that means ladies and gentlemen that $123 billion more than incoming revenue has been spent. The previous government was on trajectory for government debt to reach $667 billion. So the government was borrowing from overseas to pay our bills and our aid program – borrow overseas to send overseas.

So we have to get our budget under control, and this means that the aid program, like every other government program, had to be put on sustainable footing. Our domestic budget outlook meant that I had little choice but to reduce this year's aid budget and I did so by reducing it by about $100 million over last year. That means the tough decisions had to be made but we are still one of the most generous donor countries in the world. We remain among the world's top 10 despite being the 12th largest economy and just 53rd in the world for population – so per capita we are still among the world's top donors. But what I have done is stabilised the budget at $5 billion per annum. It will increase in line with inflation, so it will go up by CPI. This will provide certainty, predictability of funding for our partners, for the recipients and will put the aid budget on sustainable financial footing.

What was happening in the past was that announcements were being made about aid funding to meet certain targets or to meet certain groups and when the cameras moved on and the media went home, money was being removed from the forward estimates. In the last 15 months of the previous government, $5.7 billion was removed from the aid budget forward estimates. So what certainty, what predictability, did that give to recipient countries and our partners. It created the impression that Australia was an unreliable aid partner. So we intend to be reliable, consistent and far more strategic.

We are refocussing our efforts, placing our aid program more clearly in the context of Australia's national interest. And that is why the aid program is now part of the Department of Foreign Affairs and Trade. We have integrated the separate aid agency – AusAid – into the Department of Foreign Affairs and Trade. We have created a single department with responsibility for advancing Australia's interest in diplomatic trade and development context.

It is in Australia's national interest for there to be peace and prosperity in our region -it is part of our national interest. So that is why we are consolidating our efforts on our neighbourhood – the Indian Ocean Asia Pacific – where we can make the biggest difference. This is where we have a responsibility to foster peace and prosperity.

Now I know from a report on the ABC last night that apparently my priorities are wrong because I am not funding the reconstruction of the Grenada Parliament House in the Caribbean. According to the ABC I have got my priorities wrong. The previous government, in order to buy the vote of the Grenadian Government for the Security Council seat and believe me I support us being on the Security Council, promised to rebuild their Parliament House – committed $3.5 million to do it, a million dollars has already gone. The Grenadian Government actually campaigned at the last election on the basis that they would not put a dollar into the building of their parliament house because the Australian Government and others would do it.

Well, I'm sorry, but Grenada is amongst the high human development countries in the world. In fact, I had a look on the Human Development Index and Grenada is up there in that high Human Development Index. In the low Human Development Index, way down at number 156 is Papua New Guinea then Fiji or Tuvalu or the Solomon Islands or Timor-Leste or Vanuatu – that's where our aid dollars must be directed and that is where they will be directed.

It doesn't mean that we will walk away from humanitarian efforts, it doesn't mean that we don't have global responsibilities, it doesn't mean that we will take money away from multi-lateral organisations that have a much broader sweep. But when it comes to our direct aid support, the focus must be on our region.

We are going to be promoting economic growth. Aid is not a panacea to poverty. Millions of people have been lifted out of poverty by economic growth which creates jobs and which improves standards of living. Have a look at countries like China and the Asian Tigers and I know that this is true. In 1990, about 55 per cent of people in the Asia-Pacific lived in extreme poverty. It is now less than 22 per cent but I can tell you that is not because of the aid budgets, it is because economies have been opened up to trade and investment.

Aid for Trade will be fundamental to our policy approach. For every single dollar invested in Aid for Trade, an estimated $8 in additional exports will be created in developing countries. That is a good return on our investment so the program will have a much stronger focus on promoting economic growth than it has in the past years. This means using more of our aid to create jobs, to build schools and investing in productivity enhancing infrastructure and spending in our region.

We will work with partner governments to build the critical institutions and the policies they need to facilitate trade and promote functioning economies and this is all part of what I call economic diplomacy. Just as traditional diplomacy aims to achieve peace, economic diplomacy aims to achieve prosperity. Prioritising economic growth doesn't mean a lesser focus on human development or poverty reduction – they are two sides of the same coin. We will invest in better quality education, enabling young people to get to schools they need to contribute to the economy.

We recognise that one of the best ways to promote economic growth in our region is to empower women and girls. And that's why we have appointed former Senator Natasha Stott-Despoja as our Ambassador for Women and Girls. Her role will be to visit our region, to represent Australia in regional and global forum, to promote the empowerment of women and girls. When women are able to actively participate in the economy, the formal labour markets, than everyone prospers. So we are going to support women starting businesses, building their skills, stepping up to leadership roles. I had a wonderful meeting in Port Moresby with about 20 women who are in leadership roles in the private sector, in the public sector in the law and justice sector, and they are talking about obstacles to peace and prosperity in Papua New Guinea – our closest neighbour – they came down to some fundamental issues, but at the end of the day we have to be there to support the women and that means supporting the girls as well.

We will invest in health – particularly health systems – so that men and women and children can access basic health services and live healthy and productive lives. I made it clear to the PNG Government that we will move away from direct service delivery because that is the responsibility of a mature sovereign government. Australia should not still be providing textbooks to classrooms, we should not still be providing basic drugs for health centres – it is the responsibility of the sovereign government, but we will be there to help with the policies that will enable that to happen.

We are committed to playing a strong role in responding to disease threats in the region – Malaria, TB, HIV/AIDS – which can create huge economic burdens to developing countries. We are also working with governments in our region to ensure [inaudible] and growth is inclusive of the poorest and most disadvantaged, making sure particular consideration is given to improve people with disabilities, those living in remote and rural communities and ethnic minorities.

And as I said, we will continue our humanitarian work across the globe. I think Australia will continue to be the most effective, and responsive humanitarian donors – certainly in our region – and we demonstrated this in recent times in our response to natural disasters in the Philippines, Tonga and Vanuatu.

In fact, I visited the Philippines just after the impact of Typhoon Haiyan and went to Tacloban and saw the impact of our immediate response. We had a field hospital on the tarmac at the airport in Tacloban within days, treating people who had been so severely injured by the impact of the typhoon. We provided $40 million in financial assistance, in money, but our contribution went much further than that. We had 550 military personnel on the ground in the Philippines, we had aircraft – C-130s – to bring supplies and enable the aid workers to travel around the Philippines. Yet none of that counted in the assessment of our aid contribution to the Philippines – this is something else we are going to change.

When other countries include in their aid program assessment the amount of say military or private sector funding and Australia doesn't, we only count the actual dollars we provide, we are comparing apples with oranges. I was surprised to find that Australia was listed as the fourth largest donor to the Philippines typhoon effort. Given that there was $40 million dollars, 550 personnel, ships, planes and I thought "Gee, other countries must have done an extraordinary job", but when I looked at their contribution, it was their military contribution. Well, if I added Australia's military contribution we would be by far the largest donor. Now, this isn't a question of who is the largest donor, but let's compare apples with apples before people start criticising the Australian Government for not responding. Have a look at what we have actually provided and compare it with those who are said to be number one or two and their contribution was their military contribution – fantastic – but let's compare like with like.

The private sector is already involved in development assistance and I want the Australian Government to work more effectively with the private sector, recognising that private enterprise is engine of growth. So we are going to explore innovative models for private sector partnerships for development, moving away from the old way of doing things, the more traditional aid program approaches. One example is the $20 million that Australia is contributing to the Philippines Public Private Partnership Centre. Our aid dollar is helping prepare tenders to award 26 public-private partnership infrastructure projects that are valued at about $7 billion. So the work will now inform a similar pilot scheme in Indonesia, as part of the project to tackle infrastructure shortfalls in the APEC region.

This is what I mean by 'economic diplomacy' which I've placed at the heart of Australia's interactions with the world. For Australian companies there will be opportunities to design and building bridges and railways and schools and ports – that is a significant economic opportunity, but we encourage them to of course partner with local companies. It has been estimated that $8 trillion worth of infrastructure is needed in the APEC region along by 2020.

So we are funding such infrastructure such as the Cao Lahn bridge in Vietnam - that is going to transform local economies. It will enable people to travel more easily, to access education, employment and markets for their trade. We are supporting programs like the Pacific Business Fund that I recently launched in the Solomon Islands to foster business growth in developing countries. The fund will be managed by the Asia Development Bank – it will deliver capital and mentoring to local businesses who are seeking to export and expand. Our contribution of $15 million will allow the fund to work with at least 100 high potential companies to expand and diversify their operations, leverage $15 million in finance from commercial institutions, and ultimately it is estimated create up to a thousand jobs.

I have had discussions on this new aid paradigm and the involvement of the private sector across the globe in recent times. I attended a round table in Washington where aid agencies, from USAID to analysts, to some of the bigger NGOs, all discussing ways to leverage the private sector – harness the private sector – so that we can get better outcomes.

Indeed I had a long conversation with the United Kingdom's International Development Secretary Justine Green and she brings a wealth of experience from the private sector into development policy in that country. So we are sharing experiences with partner countries as we seek to create new ways and innovative solutions to long-standing development challenges. It is not good enough to do what we have always done and have the same outcomes.

A great example in our region is our partnership with Carnival Cruises to provide increased economic opportunity through the tourism industry. The Pacific is a magnificent tourism magnet and cruising is big business. Carnival brings over a quarter of a million tourists to the Pacific each year. But we need to bring local industries to Carnival and that is what we are doing through this partnership to increase local earnings. So Carnival for example has agreed to source the bottled water from a Vanuatu supplier and is in discussions to source local coffee. This might seem obvious but it wasn't happening. So the opportunities are going to stretch much further than just sales – taxi drivers and coffee shops and local tourism operators, fruit and vegetable growers on a lot of the islands all have the potential to benefit when connected to the tourism supply chain. And that is what we need to do to get local businesses into regional and global supply chains. Carnival is working to hire Ni-Vanuatu crew – they have over 100 ships visiting the Pacific annually and up to 200 crew on board these ships – the potential for job opportunities is huge.

I am really impressed with the change in thinking of a number of multi-lateral organisations. GAVI for example, its international finance facility for immunisation is using capital markets to create new funding for its work. The finance facility uses donor funds as collateral to issue bonds on the capital market, these bonds generate funds that are then used to finance crucial immunisation programs. That is the kind of thinking we need, get away from the old models of government handouts because ultimately our overseas aid is an investment in our region, an investment in the people, an investment in the future and we expect sold returns from that investment.

The Independent Review of Aid Effectiveness of April 2011 made a couple of very salient points. It noted the incredible trajectory of aid funding in previous government's budgets. It described the trajectory as "steep and challenging" and that "it makes sense that budget appropriations each year be contingent on things going to plan and existing monies being spent effectively. Failure to achieve a hurdle or fully achieve it must have consequences. For example, the government could reduce the rate of increase or withhold all the part of the funding unless and until the hurdle is achieved." And one of the recommendations was to put in place hurdles - that has not been done. That is why the Australian Government is now instituting new quality assurance measures to make sure that our aid programs are accountable and still delivering value for money. We want to deliver more effectively for those most in need.

But we are not going to impose a set of unreasonable standards on partner governments or NGOs and others working in international development. We want to have a consultative and collaborative process. My colleague the Parliamentary Secretary for Foreign Affairs Brett Mason has been leading consultations on the setting of these benchmarks. We have done extensive consultations with NGOs, with the private sector, academics including the Development Policy Centre here at the ANU, a range of partner governments – how we can improve the aid program, how we can measure it, drawing the expertise of our development partners and key multi-lateral organisations. In fact I had a meeting with the World Bank who are going through precisely the same process with their aid programs, on how to measure them, how to analyse them, how to benchmark them and how to deliver better value for money.

We have posted this discussion paper on the DFAT website and invited submissions to feed into the consultation process and I certainly welcome submissions and input from all of you here today with expertise in this area. This is a collaborative process, we want the aid sector to be closely involved. I want to see the best forms of deliveries by the best organisations to be delivered.

While we are in the process of finalising our benchmarks, I will share my thinking on some of the broad parameters.

We will be assessing performance across all levels of the aid program. At the strategic level, we will assess the entire aid programs progress against key goals and priorities – a small number of high level targets. We will use performance benchmarks at the level of individual programs to assess the relative effectiveness of our portfolio of investments, and these assessments will determine how the aid level are allocated. Then at an individual assessment level, we will ensure funding is directed to those programs, those investments that are making the most difference and that poor-performing projects or poor-performing deliverers are either improved or the funds are redirected.

We will also review the way we assess the performance of our delivery partners – multi-lateral organisations, NGOs and contractors – to ensure there is a stronger link between performance and funding and I am really pleased to report that the initial consultations indicate there has been broad agreement among our partners across the sector to this approach.

We will also be working with partner governments to ensure the millions of dollars spent each year on programs are used responsibly in those countries and effectively. That is why we are looking to introduce mutual obligations between ourselves and our partner countries, so both partners are held accountable for outcomes.

I have mentioned Papua New Guinea, it is a country for which I have very deep affection. It is a vital partner to Australia and the region, but PNG is a good example of how our relationship is maturing from the aid-donor-aid-recipient to a much more sophisticated economic partnership and our aid program should reflect that. So we are currently undertaking a review of the Papua New Guinea aid program in conjunction with the PNG Government to reflect that change. Both our governments recognise that aid investments need to target areas where Australian expertise can have a real impact on sustainable and inclusive economic growth. A more prosperous Papua New Guinea will improve the quality of life of its own people and have economic and security benefits for the whole region. This is an example of aligning Australia's foreign policy interests with our development assistance goals.

Our aid program needs to respond to a radically changing international environment. Over a billion people have been lifted out of extreme poverty over the last 20 years. There are a number of key countries in our region – including Indonesia and Sri Lanka and Vietnam – that are experiencing strong economic growth with ODA now representing a tiny fraction of their GDP. But over the years ahead our aid dollar will continue to shrink relative to domestic budgets in our partner countries in Asia, and that is how it should be. We should be seeking to do ourselves out of a job! At the same time, many of our neighbours in the Pacific do remain fragile. There has been stagnated growth and a very unclear long-term prospects.

Some countries who used to receive aid are now becoming major donors. Many traditional western donors are scaling back and new donors are emerging, so the donor aspect has shifted. These are facts that we can't ignore but are also the driving factors behind this new aid paradigm. Australia has to be more strategic to be effective.

Take China for example, China's aid budget is now around the same size of Australia's. We should be engaging China for not only is it a growing presence in our region, but we should be doing what we can to capitalise on our respective strengths, using our combined weight to bear overcoming some of the development challenges of the Pacific. Through a development cooperation partnership with China we have taken the first steps towards working together, importantly to our areas like health and water management.

For example, we have this tri-lateral cooperation arrangement with Australia, China and PNG that can draw together the different strengths of the countries. Australia is a trusted and effective donor, China is a newly developed economy and PNG's economy is going through a transition. And we have begun a collaboration to target malaria in PNG. Australia and China have technical expertise to offer PNG in combating this disease and the region of course in the long run will benefit if we continue to control Malaria. This is a positive concrete example of China's active engagement in international development and Australia's responses to the realities of the global economy. It is my hope that we can continue to engage with our traditional donors, with the emerging donors, in programs that we can make a difference.

For those of you who work in international development, we can see the hardship, the despair, the poverty and despite our best efforts, too many nations will fail to meet the millennium development goals. But I do remain optimistic because I do know that Australia's work overseas does change lives. I am sure we can do better and that we can make a much bigger difference. We will remain committed to our overseas aid program but we want to see value for money – "effectiveness" is the watch word. And we will support the organisations and those who deliver continued success and we will focus where we can have the biggest impact in our region.

Aid is a powerful tool in our statecraft. It is ultimately designed to protect and project Australia's broader interests and that is to ensure greater prosperity, sustainable growth and opportunities to lift the standards of living of everybody in our region. This is how we are going to make a significant impact in the Indian-Ocean Asia-Pacific and I hope that you will join with the Australian Government on this journey.